House panel quizzes SBI on base rate

The parliamentary standing committee on finance on Thursday asked State Bank of India (SBI) why the largest public sector lender had not declared its base rate and failed to meet its own deadline of June 15.

The committee members asked if SBI was waiting for private sector banks to announce their rates before it takes a call on the issue. The bank assured the committee that it would file a written reply soon. SBI had earlier hinted at a base rate of 7.5-8 per cent.

Members belonging to both the UPA and opposition parties told Business Standard, on condition of anonymity, that it was important for banks to declare their base rates as this would enable borrowers to take an informed decision on effective borrowing costs during the loan tenure. The base rate system is to be launched from July 1.

“SBI was to take the lead in announcing the base rate on June 15. However, there has been a delay. The committee asked SBI why it could not announce its base rate,” a UPA member said.

In its submission, SBI said the base rate would be the minimum rate for all loans and banks would not be permitted to lend below that. Therefore, it was an important decision to make, it said. Moreover, RBI has withdrawn the current stipulation of benchmark prime lending rate as the ceiling rate for loans up to Rs 2,00,000.

According to SBI, this would increase credit flow to small borrowers at reasonable rates and direct bank finance would provide effective competition to other forms of high-cost credit. This would result in an increase in credit off take. However, SBI sources, when contacted, declined to comment on the grounds that the meeting was confidential.

Several members expressed their disappointment as SBI was ranked among the top 1,000 banks in the world this year from a ranking of 64 in 2009. “SBI, in its presentation, informed if the rupee had not depreciated, SBI would have ranked 58 in the Banker magazine list. The committee wanted to know what efforts are being made by the bank to improve its global ranking.”

The committee also asked the bank to step up efforts to cover more villages under the SBI Ka Apna Gaon scheme under which it had adopted 656 villages up to March. The scheme was launched for integrated development and uplift of the poor in the villages.

“There are over 5,00,000 villages. What has SBI done to villages that saw suicides by farmers. For example, a large number of villages from the Yavatmal district of Maharashtra have witnessed a number of farmer suicides. We asked the bank whether it has adopted any village from the district,” said a senior member of the committee.